How to Get Ahead If You’re Behind on Your Car Payments

By Kim Galeta

March 6, 2019

Buying your first car is almost like a rite of passage. You’re officially an adult!

But then reality sets in. Having a car payment is a big responsibility and, with your other financial burdens (AKA student loans), things can get stressful – fast. In fact, you may find that you are falling behind on your car payments.

This can be especially frightening because if you can’t make your payments, you run the risk of your car being repossessed by the lender. And, this can seriously hurt your credit.

What to Do If You’re Temporarily Behind on Car Payments

If you’ve recently faced tough times financially but expect to be back on your feet within a month or two, then your best bet is to negotiate with your lender. Kristy Runzer, CFP® and Founder of OnRoute Financial says it’s important to explain your situation in a clear and succinct way.

“Let them know you want to pay this loan back and that you would like to work together to find a solution. This will show lenders you’re serious and not trying to just skip out on the loan,” says Runzer.

After all, the last thing any lender wants is to spend time and resources to repossess your car. This is a lose-lose situation for both you and the lender. Runzer explains that by being proactive, you may be able to negotiate with your lender to extend your payment due date or extend the life of the loan to lower your monthly payment amount.

“Don’t be afraid to ask for what you want. The worst case scenario is that they say no to your request, but they will usually be able to offer some alternative solutions,” says Runzer.

What to Do If You Can’t Afford Your Payment for the Foreseeable Future?

If you’ve found yourself in a situation where it’s going to be tough to make your monthly payment, Bola Sokunbi, CEO and founder of Clever Girl Finance, says to consider one of these options:

Trade in your car for a cheaper model.

If you have too much car for your budget, you may be able to downsize for a more affordable model. However, be sure to check if the trade-in value of your car will be enough to cover the full amount of the original loan. If the value isn’t enough, you may be on the hook for extra payments on the original amount. This is why it’s so important to read the fine print and crunch the numbers before you agree to any new terms.

Consider going without a car…at least temporarily. “Take a full assessment of where you live. You may be able to get rid of your car altogether [if you are not upside down on your loan] and leverage public transportation,” says Sokunbi, also a certified financial education instructor. Other options include biking to work or carpooling with your co-workers. In fact, some companies may offer incentives for employees who walk, bike or take public transportation to work.

Buy a cheaper car for cash. Sokunbi says that you can “absolutely find a reliable enough vehicle for between $3,000 and $5,000 that will get you from point A to point B.”

It may take you a few months to save up to make this purchase, but then you will only have to worry about your auto insurance payment instead of a hefty car payment as well. Plus you’ll benefit from having peace of mind — and you can’t put a price-tag on that.

Genius tip: Find a side hustle to accelerate your savings goal. There are so many options out there from selling plasma to teaching English online to turning your spare bedroom into an Airbnb. Just a few hours a week could totally transform your finances within a few short months!

Improve Your Credit

Sokunbi explains that a lack of credit history is a contributing factor of high car payments for some millennials. However, by taking steps to build up your credit score, you’ll have a lot more options to choose from that will be easier on your pockets.

“With an improved credit score, you can expect to benefit from a better interest rate which will save hundreds or even thousands of dollars over the life of your car loan,” says Sokunbi.

This option worked well for me a few years ago. When I bought my first car in 2013, my car payment was $405 per month. Although I earned a relatively good salary at the time, when coupled with my student loan payment and rent, I didn’t have much of a disposable income at the end of each month. It took me about six months to build up my credit score by strategically opening a few credit cards and keeping my credit card utilization ratio below 10 percent. After that, I was able to work with my lender to reduce my payments to $300 based on my improved credit score. This, in turn, gave me much more wiggle room in my budget.

Next Steps: Steer Your Finances in the Right Direction

Once you get a handle on your car situation, then it’s time to take control over the rest of your finances. An excellent starting point is to pay yourself first. This means you pay yourself each time you get a paycheck – even before you pay your bills. It might sound like a strange concept but it’s a huge game changer for anyone who wants to get ahead with their money. Paying yourself first helps you prioritize your financial goals so that you can get on a path to financial security!

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